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Saturday, September 03, 2005

In the twilight of the great Dollar standard

IN THE TWILIGHT OF THE GREAT DOLLAR STANDARDby Addison Wiggin

American consumers face the specter of losing value in their retirement savings, finding out they cannot live on a fixed income, and suffering from chronic hyperinflation. These changes are unavoidable. But there are steps that smart investors can take defensively to escape from their vulnerability to the dollar's inevitable fall.

Any number of things could create a sudden, wrenching drop in the dollar's value. Consider the following three possibilities:

1. Foreign countries drop their U.S. dollar reserves. We depend on foreign investment in our currency to bolster its value or, at least, to slow down its fall. When that thinly held balance changes, our dollar loses its spending power.

2. Oil prices increase catastrophically. We-and our real inflation rate-are at the mercy of Middle East oil. Imagine what would happen if the price of oil were to double. Or triple. Our vulnerability is not imaginary. We are all aware of our vulnerability and dependence on oil, but we don\'t like to think about it. If oil prices do rise, it will affect not only what you pay at the pump, but many other prices as well-nonautomotive modes of travel, the cost of utilities, and local tax rates, for example.

3. The double whammy of trade and budget deficits. We\'re living beyond our means. It\'s as simple as that, and something is going to give. The federal budget deficit-annual government spending that is higher than tax revenues-adds to the national debt at a dizzying rate, making our future interest burden higher and higher every day. Our trade deficit-bringing more things in from foreign countries than we sell to the same countries-has turned us into a nation of spendaholics. We\'ve given up making things to sell elsewhere, closed the store, and gone shopping. But we\'re not spending money we have. We\'re borrowing money to spend it. Any head of a family knows that this cannot go on forever without the whole thing falling apart-and yet, that is precisely what we are doing on a national scale.

Even as our economy burns, our political leaders fiddle. They point to economic indicators to prove that our economy is strong and getting stronger. This information would be valuable . . . if only it were true.

Politicians like to measure the economy with esoteric indicators. For example, we are told that consumer confidence is up. Well, confidence is all well and good, but what if it isn\'t accurate? Yankee optimism has achieved a lot in the past 200 years, but it alone is not going to prevent the current dollar crisis from getting worse and worse.

Does this mean that the United States is finished? No, but it does mean that our long history of economic power and wealth is being eroded from within. For example, look at how the reality has affected you in recent years. For most people, the real state of our economy is measured in one way: jobs. Sure, the number of jobs rises every month, but the truth is not as reassuring. We are losing high-paying jobs in manufacturing and replacing them with low-paying jobs in health care, retail, and other menial job markets. 2. Oil prices increase catastrophically. We-and our real inflation rate-are at the mercy of Middle East oil. Imagine what would happen if the price of oil were to double. Or triple. Our vulnerability is not imaginary. We are all aware of our vulnerability and dependence on oil, but we don't like to think about it. If oil prices do rise, it will affect not only what you pay at the pump, but many other prices as well-nonautomotive modes of travel, the cost of utilities, and local tax rates, for example.

3. The double whammy of trade and budget deficits. We're living beyond our means. It's as simple as that, and something is going to give. The federal budget deficit-annual government spending that is higher than tax revenues-adds to the national debt at a dizzying rate, making our future interest burden higher and higher every day. Our trade deficit-bringing more things in from foreign countries than we sell to the same countries-has turned us into a nation of spendaholics. We've given up making things to sell elsewhere, closed the store, and gone shopping. But we're not spending money we have. We're borrowing money to spend it. Any head of a family knows that this cannot go on forever without the whole thing falling apart-and yet, that is precisely what we are doing on a national scale.

Even as our economy burns, our political leaders fiddle. They point to economic indicators to prove that our economy is strong and getting stronger. This information would be valuable . . . if only it were true.

Politicians like to measure the economy with esoteric indicators. For example, we are told that consumer confidence is up. Well, confidence is all well and good, but what if it isn't accurate? Yankee optimism has achieved a lot in the past 200 years, but it alone is not going to prevent the current dollar crisis from getting worse and worse.

Does this mean that the United States is finished? No, but it does mean that our long history of economic power and wealth is being eroded from within. For example, look at how the reality has affected you in recent years. For most people, the real state of our economy is measured in one way: jobs. Sure, the number of jobs rises every month, but the truth is not as reassuring. We are losing high-paying jobs in manufacturing and replacing them with low-paying jobs in health care, retail, and other menial job markets.

Our mantra of "Yankee ingenuity can accomplish anything" is gradually being replaced with a new mantra: "Would you like fries with that?"

Regards,

Addison WigginThe Daily Reckoning

Editor\'s Note: Each month, Addison, along with some of the greatest investment minds in the world, meet to debate gold, technology, oil, natural gas, penny stocks and real estate. It is during these secret meetings that most profitable investment ideas that we publish are born. Now, for the first time ever, Addison is opening these gatherings to the public - but only to a select few, and only for a limited time...

The Birth of an Elite Insider\'s Club

Our mantra of "Yankee ingenuity can accomplish anything" is gradually being replaced with a new mantra: "Would you like fries with that?"

11 Comments:

At one time communities would seek counsel from the elders on matters of import. More experience usually translated into lessons learned. Having survived my share of crises, I am still around to share a thought or two. The main lesson is to never stop learning. Reading is good as is seeking other points of view and new ideas like visiting your blog. Finding what is ultimately important leads one to appreciate actuality, efficiency and mindfulness. Helping others to see some of the forest through the trees is another. discernment

"But there are steps that smart investors can take defensively to escape from their vulnerability to the dollar's inevitable fall."- What specific actions do you recommend Americans take to protect themselves from this great demise to come? Also, what makes you so confident that the USD's continued fall is so inevitable? At the end of the day, if you were a central banker, you would only have 1-3 choices for a reserve currency. Go back to the gold standard? Also, have you considered that there is simply too much liquidy in the global market and this has contributed more towards weaker purchasing power as opposed to reasons such as loss of American competitiveness? Considering that the Fed went from 20%+ in the early '80s to 1% in 2003 and also the presence of the Eurodollar market, and off balance sheet derivatives, there was a lot of liquidity injected into the global markets over the last twenty-some-odd years. I think it's more a question of who will own what rather than a question of the $USD. And for the record, I think the solution, which the Greeks knew about over 2,000 years ago but did not practice themselves either was to live within your means. For chrissakes, nobody wants to be accountable anymore and put in some work. Everyone's such a crybaby.

PEOPLE JUST HAVE TO BE RIGHT ON THE HOUSING BUBBLE!I have been investing, financing and brokering in real estate for almost 20 years. From practical hands-on experience in every aspect of real estate my goal here is to be the “Calm in the Eye of the Storm”. Remember that “they” said Warren Buffet was a genius before the Internet Stock craze and after, but apparently not during it. Read more: http://millionairenowbook.blogspot.com/2006/09/people-just-have-to-be-right-on.html

This week we learned that on August 30 the United States Air Force flew a B-52, locked and loaded with nuclear warheads, from North Dakota to Louisiana. This broke a military policy going back to the 1960s against such flights.

There is a still more dreadful prospect though. Our "unitary executive" may be threatening or preparing a strike against us, the unruly and now war weary American People who are the greatest impediment to the Neocon New American Century plan. It used to be that only the 911 Truth community would entertain the idea that the next 911, the "911-2B" attack, could come from our own government. However, a recent spate of Bush administration pronouncements that we are due for such an attack has made it apparent to many other Americans that Bush would welcome a 911-2B event -- or might even arrange one

http://www.globalresearch.ca/index.php?context=va&aid=6749

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Why was a nuclear-armed bomber allowed to fly over the US?

Wednesday’s revelation that a US Air Force B-52 bomber flew over the length of the United States armed with six cruise missiles carrying nuclear warheads has attracted amazingly little media attention.

RUMOR: Within intelligence circles there are rumors that the munitions airmen acting on their own without orders, disconnected the powersuppy to each of the missiles prior to mounting them on the B52's pylons. This act prevented the onboard missile computers from being overridden from the ground and launched remotely [out of the control of the B52 pilots].